As commodity markets go, so go cropland rental agreements, according to Midwestern farm and land management experts. Currently, both crop markets and land rental rates are trending very high.

“For the last four to five years, unprecedented production and commodity price increases have helped many farmers to pay down debt and/or add parcels of land,” says Gary Hachfeld, University of Minnesota, Extension ag business. “As farmers have prospered, the competition for land has intensified for cash rents.”

Volatile economies make both market and rental rate trends difficult to predict, says Lloyd Brown, president, Hertz Farm Management. “The trend for cash rents for the last several years has been to follow commodity markets. Yet it’s still early in the season and early in the game to foresee what lease rates will be like in 2013.”

Whichever way lease rates go, it’s the most efficient and respected farmers who will likely succeed in keeping the land they lease now or adding more acres, says Gerald Harrison, Purdue ag economist. “Rents have been in an upheaval over the last few years,” Harrison says. “Finding and keeping land to farm is difficult. To farm more acres, you have to be efficient enough to outbid your neighbor, but you also have to have a good reputation.”

These experts offer the following tips for negotiating new and old leases:

{1} Be knowledgeable and competitive.

“The most important factor in cash rent negotiations is your expected revenue (potential crop yield and price minus input costs),” Brown says. “The keys are staying up with the markets, being competitive in your bid and establishing good relationships.”

{2}  Know the landowner.

Negotiating a cropland lease with the landowner is more of an art than a science, Hachfeld points out. “The bottom line for many landowners is the desire to obtain top-dollar rent per acre,” he says. “For these owners, the highest dollar amount that they can get someone to pay is generally the bid that they will take.

“[Others] are less concerned about obtaining top dollar and more concerned about seeing their current tenant succeed or choosing a tenant that they like and trust,” Hachfeld says.

{3} Be reliable.

Past tenant performance can be the key factor in an owner’s decision to terminate a lease and/or to find a new tenant, Hachfeld says. “Above all, tenants should be reliable and pleasant to work with,” he explains. “They should take care of the weeds, keep the fertility up, be honest, avoid negative comments and complaints and pay their rent on time.”

Brown adds that farmers need to have a resume ready with good references.

{4} Target your communications.

Depending on the owner, there can be either too much or too little communication, Hachfeld says. “Some require very specific information on how you’re farming the land and when you’re doing it. Others just want to be paid on time.”

The big challenge comes in trying to lease land from people who inherit property without a tie to agriculture, he adds. Then discussions about crop input costs, corn and soybean price swings, and even drainage, fertility and conservation practices are helpful for educating owners.

Professionals, including bankers, extension and university sources, and government sources, may be able to help determine fair rental rates. In addition, the National Agricultural Statistics Service (NASS) tracks rental rates by county (visit www.nass.usda.gov, click “Surveys,” then “Cash Rents by County”). Annual by-county NASS land rental rate estimates are released in September.

{5} Know lease laws.

The most typical lease in the Midwest runs from March 1 through Feb. 28. Lease termination deadlines vary by state.

“For Iowa, Sept. 1 is the notification deadline for a new lease to be in place for an official termination,” Brown says. “For Illinois, the deadline is Nov. 1. For Missouri, it is 60 days prior to the end of the lease.”

Operators should finalize new land leases by harvest so they can perform tillage operations and apply fertilizer during fall, Brown says. “To make this possible, one option is to have an agreement that if no new lease is made by harvest, the operator could be paid back for fall tillage and fertilizer applications,” he says.

Harrison suggests new tenants check with a tenant they believe has been terminated before starting field operations on a new farm or risk legal repercussions.

“To begin farming land that is not available due to a prior lease agreement would be a trespass,” Harrison says. “The trespass could happen even if a timely notice has been delivered to terminate the lease, if the lease year has not yet expired.”

Both lease agreements and termination notices should be in writing, preferably with help from a lawyer,
Harrison adds.

{6}  Negotiate lease type.

“With all the uncertainties in the market right now, the trend in the business is to set a base cash rent with a bonus if revenues are above a certain threshold,” Brown says. “Half of the cash rents we work with are now on a flexible lease, with a competitive base rent and with opportunities for participating in any higher-than-expected revenues. There is a guaranteed minimal rent, plus a bonus for landowners if crop yields and commodity prices are strong.”

Hachfeld agrees that a flexible cash lease can be useful for both landowner and tenant. “However, in a flexible lease, I would strongly suggest setting a top rental payment, so that the tenant doesn’t give away all the potential profit in a very good year, as well as a bottom rental payment, so that the owner is assured some payment for the land even in a very bad year,” he says.

Many landowners don’t want the added complexity of either a flexible lease agreement or a crop-share lease. “Even in a standard cash lease, a tenant might still consider voluntarily paying a bonus to the owner after a very good year to help cultivate a long-term working relationship,” Hachfeld says.

Some landowners do desire more complex land leases. “With the help of a professional farm manager, a custom operation arrangement or modified crop share arrangement may be of interest to landowners who wish to have more control over their land and farming operation,” Brown says. “These types of leases provide an opportunity for landowners to capture more of the net income generated by higher commodity markets.”

{7} Be proactive.

 “A farmer has to start early to find someone who wants to and is legally able to terminate an existing tenant,” Harrison says. “Farmers who want to take this approach should identify land that they desire to farm and contact the landlord or his or her manager and indicate a rent, ideally by August of the current year. They should also question and/or advise the landowner about the lead time needed for a notice to terminate the current tenant.”

Another way to potentially acquire more acres is to look for nearby land that is for sale and check with the new buyer to see if you can farm it, Harrison says. He adds that farmers should also check for ads in local and regional publications for notices that landowners and farmland managers are seeking new tenants.